1. The Future of Sovereign Wealth Fund
Shelby Dattilo
October 14, 2014
Panelists:Ian Macfarlane,Goldman Sachs Advisor - Ahn Hongchul,Korea InvestmentCorporation Chairman and
CEO - Charles Dallara,Partners Group Executive Vice Chairman ofthe Board of Directors and Chairman ofthe
Americas - Glenn August, Oak Hill Advisors, Founder and CEO
In the lastdecade alone,sovereign wealth funds have increased their total assetmanagementfrom 3 trillion to 6
trillion dollars.The investments into Western banks made bysovereign wealth funds during the global financial crisis
have been cited as a key elementto recentglobal economic recoveries.In lightof this, however, Glenn August,
Founder and CEO of Oak Hill Advisors, explained,“The sovereign wealth fund phenomenon is still relatively new.”
At the 15th Annual World Knowledge Forum in Seoul,Korea,various experts in the fields of inves tmentgathered to
discuss whysovereign wealth funds are special and to forecasttrends for future investments.Joining Mr. August in
the panel were Ian Macfarlane, Goldman Sachs Advisor, Ahn Hongchul,Korea InvestmentCorporation Chairman
and CEO, and Charles Dallara,Partners Group Executive Vice Chairman ofthe Board of Directors.
The panel pointed outthat the major difference between sovereign wealth funds and other traditional investment
funds is that the former can be long-term investments.Squashing some growing fears over the power of sovereign
wealth funds,Mr. Dallara noted that they can be responsible and stablizing,rather than frightening.The stabilizing
effects of sovereign wealth funds are achieved through their ability to make long-term investments.
These investments do notdiscourage alternative assetinvestment.In fact, sovereign wealth funds seek high interest
investments which can,at times,also be high risk.
As August put it, “All investors are looking for yield in a yield-starved world.”
Many of the higher risk investments the panelists spoke ofarise in emerging markets.In turn, this type of investment
is what helps to spur global economic change.
“Sovereign wealth funds look for developing countries and are more likely to spread wealth or investmentaround the
world than if the funds were in a central bank,” said Mr. Macfarlane. Nevertheless,long-term investments are the
major developmental goal ofmostsovereign wealth funds.
Mr. Hongchul cited that the key is to make well planned long-term investments as well as to look into co-investing to
reduce some ofthe risk involved in alternative and direct investments.He compared this partnership to the tango,
because in order to tango, you need a partner.
Mr. Hongchul spoke ofhis plans to open a co-investing platform next year as a way for the Korean Investment
Corporation to match with like-minded investmentbanks,assetmanagementcompanies,managementadvisors,law
firms,accounting firms,insurance companies,universityendowments,and foundations.
Mr. August, however, gave an alternative perspective on co-investment.
“[There are firms with] hundreds of billions in capital,butcannotexecute,” he said.He observed that sovereign wealth
firms differ greatly in size and expertise, meaning thatthe co-investmentmodels are notapplicable for all firms.
Mr. Augustalso explained that the notion of co-investmentcalls attention to the issue ofassetallocation.The panel
was then posed the question of whether sovereign wealth funds should be investing in infrastructure.Mr. Dallara
stated that, “Governments are wrong if they think sovereign wealth funds will be a greatslush fund to pull into
infrastructure.”
Overall, the panel tended to agree on a need for sovereign wealth funds to aim for long-term goals while
simultaneouslyreaching for higher yield investments.It was clear that sovereign wealth funds will be closelywatched
in the future as key players in the global economic framework,due to the way that they differ from other investment
funds.
“Sovereign wealth funds are the only unconstrained publicly oriented investors in the world today,” Mr. Dallara said.